04 Feb 2019

US/China trade talks progress following high-level negotiations

Following high-level negotiations in Washington, both the US and China claim to have made progress in resolving their trade dispute. Negotiators are working towards a deadline of 1 March and in the absence of a deal or a time extension then a further increase in tariffs on a further $200bn of Chinese exports are set to go into effect.

As part of last week’s talks, Vice Premier Liu He pledged to President Donald Trump that China would purchase an additional five million tonnes of soybeans. Beijing looks to be making good on that promise, with state firms COFCO Group and Sinograin announcing in separate statements over the weekend that they had each purchased more than one million tonnes of US soybeans. Mr Trump appears to be pleased with the direction of talks, having praised the “tremendous progress” made. He has also said that the US will send its own delegation of senior administration officials before meeting with his Chinese counterpart Xi Jinping “once or twice” to conclude the trade talks.

 

UK this week

 

The UK government successfully defeated a number of amendments last Tuesday, including one which would have given MPs control of the Brexit agenda on set days and another which would have established a mechanism for MPs to extend Article 50. At the same time it successfully won an amendment put forward by 1922 Chairman Sir Graham Brady which rejects the Irish backstop in favour of “alternative arrangements”. Theresa May is now hoping to use this to convince the EU27 to bin the backstop, though the response thus far has been a resounding no. Over the course of this week we can perhaps expect this political ping-pong to continue between London and Brussels, leading to continued uncertainty. Faced with this Brexit ambiguity, we expect the Monetary Policy Committee (MPC) to vote unanimously to hold rates on Thursday and for Governor Mark Carney to refrain from giving any firm policy steers in his quarterly Inflation Report press conference. It is rather thin in the way of UK data, with the two highlights being the BRC Retail Sales Monitor and the services PMI which are both due on Tuesday.

 

US this week

 

Last week saw the end of the partial US government shutdown after a bipartisan deal provided funding until 15 February. As such various government departments have begun to reschedule data that has been postponed by the fiscal standoff. One notable release that has yet to given a new date is US GDP for Q4, but the White House’s chief economic advisor Larry Kudlow has suggested we can expect it as early as next week. In any case we can expect the ISM non-manufacturing print (Tue) and trade figures (Wed), with Fed Chair Jerome Powell participating in a mid-week town hall meeting. The President is also set to deliver his annual State of the Union Address to Congress late on Tuesday. US/Chinese trade talks have taken a positive turn over the weekend as discussed above.

 

Europe & the ROTW this week

 

In Europe, investors are likely to be pay close attention to industrial production figures for the four largest member states (Thu & Fri) for signs (among others) of whether car manufacturers have adjusted to the new emissions tests. Note also that an update to the European Commission’s economic forecasts is out on Thursday morning, as is the ECB’s Economic Bulletin. Over in Asia the week is set to be relatively quiet given that it will be China’s Lunar New Year Golden Week. This will mean that the Caixin services PMI will be released on Sunday rather than with the rest of the IHS Markit suite on Tuesday. In Japan, we can expect the preliminary estimate of the leading index (Wed) as well as the economy watchers survey (Fri).

 

Economic releases

 

EU:        10:00 EU PPI

              10:00 Italian CPI

UK:        09:30 Construction PMI

US:        15:00 Factory Orders + Durable Goods